A U.S. District judge on Tuesday ruled that Sprint and T-Mobile, the nation’sthird- and fourth-largest mobile carriers, couldgo forward with a US$25 billion merger. The deal will not closeuntil the California Public Utilities Commission approves thetransaction, but clearing this latest hurdle moves the two companies one step closer to a merger that has been years in the making.
Attorneys general from several states — California,Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Michigan,Minnesota, Oregon, Pennsylvania, Virginia, Wisconsin — and theDistrict of Columbia brought lawsuits to block the deal following pastapproval from both the Department of Justice and the FederalCommunications Commission.
The states argued that such a merger would limit competition andresult in higher prices for consumers. Sprint and T-Mobile countered that as a combined entity they would be positioned to compete better with AT&T and Verizon. In addition, the carriers suggested that pooling their resources would help them build a nationwide 5G mobilenetwork.
In the end, U.S. District Judge Victor Marrero ruled in favor ofSprint and T-Mobile, finding that the combined company would notresult in higher prices or lower-quality wireless service. He alsodisagreed with the argument that Sprint would be able to operate as astrong competitor without the merger.
Dish Network, the Colorado-based satellite pay-TV service, willenter the market as the fourth nationwide mobile carrier.
As a condition of the merger, T-Mobile and Sprint must divest Sprint’sprepaid business, including Boost Mobile, Virgin Mobile, and Sprintprepaid, to Dish. In addition, T-Mobile will provide Dish with accessto the T-Mobile network for a period of seven years, while Dishtransitions the business and builds out its own 5G network.
The proposed settlement also calls for a divestiture of substantialspectrum assets to Dish. Also, T-Mobile and Sprint must make available to Dish at least 20,000 cell sites and hundreds of retail locations.
Bridging the Networks
Going into the merger T-Mobile has the wider coverage map, whichshould be good news to Sprint customers. However, the companiesoperate on completely different network technologies. T-Mobile’s network is GSMwhile Sprint is CDMA. Sprint customers may beforced to buy a new phone after the merger.
For T-Mobile customers, very little is expected to change, as it istaking over Sprint’s billing once the deal closes. Sprintcustomers on prepaid services, including Boost Mobile and VirginMobile, won’t be heading to T-Mobile and instead will become Dishcustomers.
Consumer advocates have warned that unlimited plans could be injeopardy. Both Sprint and T-Mobile tried to lure consumers withsuch plans. With less competition, there is an argument that AT&T andVerizon won’t need to continue to offer such plans. However, it is unlikely that either of the big two carriers can cut prices, or that T-Mobile’s pricing will increase much, at least in the short term.
“Wall Street values both companies on profit margin,” noted RogerEntner, principal analyst at Recon Analytics.
“Any reduction in margin is harshly punished with a lower stock price,so I don’t think ‘New T-Mobile’ will raise prices,” he told theE-Commerce Times.
“T-Mobile gets rewarded for customer growth. Its continued low priceswould ensure more new customers,” added Entner.
One of the biggest arguments against the merger of the two carrierswas that it would reduce competition, limit consumer choice, andraise prices.
“The question before judge Marrero, and still before the CaliforniaPublic Utilities Commission, is whether the merger will reduce orincrease competition in the U.S. mobile services market,” said SteveBlum, principal analyst at Tellus Venture Associates.
“I don’t agree with Marrero. Going from four national competitors tothree will reduce competition, particularly at the low end of themarket,” he told the E-Commerce Times.
“Consolidation of two such wireless powerhouses means significantlyreduced competition in the U.S. in an already highly concentratedmarket,” said telecommunications analyst Gil Regev, consultant atGil Regev Communications.
The result is “mainly bad news for consumers, translating into hikingprices, with U.S. mobile subscribers already paying some of thehighest plans in the Western world,” he told the E-Commerce Times.
Serving the Same Customers
Arguable, the pre-merger wireless landscape is not a four-way competition. AT&T andVerizon are top-tier competitors of relatively equal strength, while T-Mobile and Sprint are second-tier rivals.
“T-Mobile and Sprint compete against each other for customers AT&T andVerizon aren’t particularly interested in,” noted Blum.
“With that dynamic gone, T-Mobile can either set ‘affordable’ pricesat a point that maximizes profit, or ignore that market segmentcompletely,” he added.
“They say they won’t do that, but economic reality says otherwise. Everybody hates a monopoly until they are one,” Blum quipped.
Another concern is that with one less carrier innovation could suffer — at least until Dish isable to make the transition from satellite pay-TV service to fullmobile phone carrier. However, thecounter argument is that the combined T-Mobile and Sprint could be farbetter positioned to roll out a 5G network to compete with AT&T andVerizon.
“This merger does present an opportunity on the technological front. The recent ruling stipulates that the newly merged T-Mobile/Sprintcompany is required to provide 97 percent 5G coverage across the U.S. in the next three years,” said Regev.
“The rolling out of this advanced infrastructure will notonly be available in big cities and financially strong states butthroughout the country, presenting new opportunities for employmentand an advanced-connected technology rollout throughout the U.S.,”he added.
“This could potentially increase T-Mobile/Sprint’s current –relatively small — market share, compared to AT&T and Verizon,”suggested Regev.
Another consideration is how the two companies, which have each seentheir fair share of mergers and acquisitions, actually will handletheir joining of services.
“Both companies have showed the best and worst in merger integration,”said Recon Analytics’ Entner.
“T-Mobile’s integration of Metro PCS was probably the best I’ve everseen, while Sprint’s integration of Nextel was probably the worst,” headded. “[T-Mobile US President] Mike Sievert is a knownoperator and has experience on how to pull a merger off. I amoptimistic for T-Mobile.”